The Punjab National Bank Fraud Case relates to fraudulent letter of undertaking worth ₹14,356.84 crore (US$ 2.1 billion) issued by the Punjab National Bank at its Brady House branch in Fort, Mumbai; making Punjab National Bank liable for the amount. The fraud was allegedly orchestrated by jeweller and designer Nirav Modi. Nirav, his wife Ami Modi, brother-in-law Nishal Modi and uncle Mehul Choksi, all partners of the firms, M/s Diamond R US, M/s Solar Exports and M/s Stellar Diamonds; along with PNB officials and employees, and directors of Nirav Modi and Mehul Choksi’s firms have all been named in a chargsheet by the CBI. Nirav Modi and his family absconded in early 2018, days before the news of the scam broke in India.
Nirav Modi is currently in the United Kingdom and is seeking political asylum in Britain though the Indian government has officially asked for his extradition. The Enforcement Directorate has begun attaching assets of the accused and is seeking to immediate confiscation under the Fugitive Economic Offenders Ordinance.
Modi is on the Interpol’s wanted list for criminal conspiracy, criminal breach of trust, cheating and dishonesty including delivery of property, corruption, money laundering since February 2018.
The bank initially said that two of its employees at the branch were involved in the scam, as the bank’s core banking system was bypassed when the corrupt employees issued LOUs to overseas branches of other Indian banks, including Allahabad Bank, Axis Bank, and Union Bank of India, using the international financial communication system, SWIFT. The transactions were noticed by a new employee of the bank. The bank then complained to the CBI, who are currently investigating the scam apart from ED and RBI. On a later date, CBI named key officials Usha Ananthasubramanian, former CEO of PNB, executive directors KV Brahmaji Rao and Sanjiv Sharan in a charge sheet holding them responsible for failure to implement several circular and caution notices issued by the RBI regarding the reconciliation of SWIFT messages and core banking systems.
On 1 March 2018, the Modi government approved the Fugitive Economic Offenders Bill to deter economic offenders from evading the process of Indian law by giving powers to the government to confiscate assets of a fugitive, including Benami assets of absconding loan defaulters. The bill covers a wide range of economic offenders which include: loan defaulters, fraudsters, individuals who violate laws governing taxes, black money, benami properties, financial sector, and corruption. On 12 March2018, the government introduced the bill in the Lok Sabha.
In March 2018, the Reserve Bank of India scrapped banking instruments such as the Letter of understanding (LoU) and Letter of Comfort (LoC) that in an attempt to plug a loophole and improve banks’ due diligence in trade credit. Some bankers said that LoUs and LoCs led to receiving banks depending completely on the issuing bank on creditworthiness.